Have you ever felt stressed about paying off your mortgage? You’re not alone. Approximately 65 percent of homeowners have had anxiety about that, too, according to NerdWallet. Some homeowners, however, have discovered a smart way to lessen the burden. They call it “house hacking”.
What is house hacking?
It’s actually a pretty old strategy. In house hacking, you lease a part of your house to a boarder. The rent you collect will then be used to pay the mortgage or make improvements. Easy, right?
It’s one way have other people pay for your house. So, if you’re considering this method, here are a couple of things you should do.
- Check the legal aspects
First off, look into local zoning laws or ask your local government if it’s alright to have boarders. Some places require a license or restrict the number of tenants permitted, while others completely prohibit this.
- Plan ahead
Maybe house hacking sounds good right now but what about months or even years from now? Your plans can change. You might also have to deal with certain situations involving your tenant. What if they abruptly decide to move out?
It’s best to have an exit strategy in your contract for when such things happen. Insert details on reimbursements and even lease term. Having a tenant also means you’ll become a landlord. It’s a hands-on job. Are you ready to take it? If not, are you willing to hire somebody to do it for you?
- Decide who you’ll rent to
Are you opening your home to a friend, a relative, or a complete stranger? It depends on your preferences. Each group has pros and cons. For instance, living with a friend might give you some comfort, but late payments and entitlement to special treatment can also put a stress on the relationship.
- Check your insurance
Insurance policies have different coverage. To be sure, ask your insurance provider if your policy will be affected by renting a room or two. You also have the option to add coverage to your existing policy to protect you and your home.
- Research rent prices
How much are you going to charge your tenant? You can search for similar properties in the market and come up with the average rent price in your area.
- Document everything
An additional layer of protection is to have a written, state-approved lease. It will make the whole arrangement more official. It is also best to brush up on local landlord-tenant laws to make sure everything is accordance with the law.
- Don’t forget to pay your taxes
If you don’t report your new income (from rent), you might end up paying back taxes, additional interest, and even penalties if you’re audited by the IRS. You also won’t be able to enjoy certain tax deductions. Keep everything on record and consult a tax professional when you’re in doubt.
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